August 11, 2022

OPEC Keeps Lid on Oil Production Targets

The lack of even modest action was a setback for Saudi Arabia, which had argued for a change in production quotas that had been set nearly three years ago. But it is likely to have little more than symbolic importance since the organization is now pumping about 1.5 million barrels above the quota levels anyway and Saudi Arabia has been increasing output the last several weeks by an estimated 200,000 barrels a day.

Iran led the bloc of countries that opposed changing the quotas, even though it has been exceeding its own allotment by about 50,000 barrels a day for more than a year to raise funds to counter economic sanctions. Some oil experts said that Iran, which holds the presidency of the Organization of Petroleum Exporting Countries this year, was merely maneuvering to undercut Saudi Arabia, its traditional adversary.

Oil benchmark prices rose in response to the surprise outcome, but only modestly, by a bit more than a dollar a barrel.

“Everybody in OPEC is cheating and everyone knows that,” said Fadel Gheit, an Oppenheimer oil analyst and managing director. “Don’t listen to what they say, but watch what they do.”

The decision comes at a time when international oil markets are tightening, with stockpiles declining in much of the world. The United States Energy Department estimated this week that world oil consumption will grow by 1.7 million barrels a day, mostly due to increasing use of oil for electricity generation in China, Japan and the Middle East.

In the meantime, the turmoil in Libya has taken over 1.3 million barrels a day off of the world market, and unrest in Yemen and Syria have subtracted as much as 300,000 barrels a day.

The International Energy Agency, the Paris-based organization that represents industrial countries, reacted to the OPEC inaction with concern. “We have noted with disappointment that OPEC members today were unable to agree on the need to make more oil available to the market,” the IEA said in a statement. “A further tightening in the market and potential increases in prices risk undermining economic recovery.”

But the organization also noted that “what really matters is actual supply.”

Ever since Libyan exports slowed around March, Saudi Arabia has assured importing countries that it would bolster production. As the only OPEC member with considerable spare capacity, estimated at 2.5 million to 3 million barrels a day, Saudi Arabia is the only OPEC member that has the ability to bolster supplies and curb price increases.

“In the end, it’s all about how much extra oil Saudi Arabia can or is willing to put on the market,” said Amy Myers Jaffe, a Rice University energy analyst. “Who cares what Iran says? It doesn’t matter. The countries produce whatever they think is best for their individual financial needs and long-term strategy.”

Iran was able to block Saudi Arabia in large part because it holds the presidency. The organization is likely to meet again within three months in Iran to reconsider its decision.

Relations between Iran and Saudi Arabia, never particularly warm, are tense these days over the sectarian turmoil in Bahrain. Saudi Arabia sent more than 1,000 troops into Bahrain in March to help put down predominately Shiite protests against the Sunni monarchy. Saudi Arabia blames Iran for inciting the protests, and Iran has harshly criticized Saudi Arabia and Bahrain for repressive policies.

The current OPEC quotas were set by the 12-nation organization in December 2008, when oil prices were plummeting at the outset of a global recession. The quotas put a floor on slumping prices and maintained moderate and stable prices for more than a year. But as prices began to rise, many OPEC members began to cheat, making the current quotas little more than a shadow benchmark.

With oil prices rising by more than 35 percent in the past year, a debate has emerged inside OPEC about what to do about them. Saudi Arabia has led members that want to help save the economic recovery with moderate prices, while Iran and Venezuela have resisted. Most OPEC countries, including Saudi Arabia, say speculators rather than tight supplies are the cause of the rising prices.

“No formal decision was reached on a production agreement,” OPEC said in a short statement after the closed-door meeting. “However, the organization abides by its long-standing commitment to order and stability in the international oil market.”

Article source: http://feeds.nytimes.com/click.phdo?i=37d7a082311fc58067ecbca5da9e48c0

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